Xiaojun Wang, Zengming Jiang

【Abstract】

In the background of declining mortality rate and significant longer life expectancy, the longevity has become an important systemic risk faces by enterprise annuity. Firstly, this paper constructs an enterprise annuity framework including accumulation phase, decumulation period and the pension target. Then we measure the longevity risk with limited data Two-Stochastic Lee-Carter model.With the asset liability matching criteria of enterprise annuity, we set objective function to minimize the variance of the simulated sample path. Regarding enterprise annuity investment-related laws and regulations as the main constraints, we try to find the optimal contribution rate and asset allocation strategy during the accumulation phase to deal with longevity risk during the decumulation phase. The results show that longevity risk has a very significant impact on the optimal contribution rate and asset allocation of enterprise annuity. To address to the longevity risk faced by the enterprise annuity, the pension providers should set a more aggressive asset allocation in addition to increasing the annuity contribution rate. Sensitivity analysis results indicate that the optimal investment strategy with the low annuity replacement ratio is relatively conservative while the high annuity replacement ratio and shortened payment years, the optimal investment strategy is more aggressive.

【Keywords】

longevity risk, enterprise annuity, contribution rate, asset allocation